Important IELTS Reading Test, 9th April
IELTS Reading Practice Test – 8
Reading Passage 2:-
You should spend about 20 minutes on Questions 14-26 which are based on Reading Passage Two.
MONEY AS THE UNIT OF ACCOUNT
The most difficult aspect of money to understand is its function as a unit of account. In linear measurement we find the definition of a yard, or a meter, easy to accept. In former times these lengths were defined in terms of fine mines etched onto brass rods maintained in standards laboratories at constant temperatures. Money is much more difficult to define, however, because the value of anything is ultimately in the mind of the observer, and such values will change with time and circumstances.
Sir lsaac Newton, as Master of the Royal Mint, defined the pound sterling (£) in 1717 as 113 grains of pure gold. This took Britain of silver and onto gold as defining the unit of account. The pound was 113 grains of pure gold, the shilling was 1/2-0 of that, and the penny 1/240 of it.
By the end of the 19th century the gold standard had spread around most of the trading world, with the result that there was a single world money. It was called by different names in different countries, but all these supposedly different currencies were rigidly interconnected through their particular definition in terms of a quality of gold.
In economic life the prices of different commodities and services are always changing with respect to each other. If the price of potato crop, for example, is ruined by frost or flood, then the price of potatoes will go up. The consequences of that particular price increase will be complex and unpredictable. Because of the high price of potatoes, prices of other things will decline, as demand for them declines. Similarly, the argument that the Middle East crisis following the Iraqi annexation of Kuwait would, because of increased oil prices, have led to sustained general inflation is, although widely accepted, entirely without foundation. With sound money (money whose purchasing power does not decline over time) a sudden price shock in any one commodity will not lead to a general price increase, but to changes in relative prices throughout the economy. As oil increases, other goods and services will drop in price, and oil substitutes will rise in price, as the consequences of the oil price increase work their unpredictable and complex way through the economy.
The use of gold as the unit of account during the days of the gold standard meant that the price of all other commodities and services would swing up and down reference to the price of gold, which was fixed. If gold rushes in California and Australia petered out, then deflation ( a general price level decrease) would set in, when new gold rushes followed in South Africa and again in Australia, in the 1880s and 1890s, the general price level increased, gently, around the world.
The end of the gold standard began with the introduction of the Bretton-Woods Agreement in 1946. This fixed the values of all world currencies relative to the US dollar, which in turn was fixed to a specific value of gold (US$0.35/oz). However, in 1971 the US government finally refused to exchange US dollars for gold, and other countries as they wanted, and the more that was printed, the less each unit of currency was worth.
The key problem with these government “fiat” currencies is that their value is not defined; such value is subject to how much money a government cares to print. Their future value is unpredictable, depending as it does on political chance. In our economic calculating concerning the past we automatically convert incomes and expenditures to dollars of a particular year, using CPI deflators which are stored in our computers. When we perform economic calculations into the future we guess at inflation rates and include these guesses in our figures. Our guesses are entirely based on past experience. In Australia most current calculations assume a three to four per cent inflation rate.
The great advantage of the 19th century gold standard was not just that it defined the unit of account, but that it operated throughout almost the entire world. A piece in England was the same as a price in Australia and in North America. Anthony Trollope tells us in his diaries about his Australian travels in 1872 that a pound of meat, selling in the UK. It was this price difference which drove investment and effort into the development of shipboard refrigerations, and opening up of major new markets for Australian meat, at great benefit to the British public.
Today we can determine price differences between countries by considering the exchange rate of the day. In twelve months’ time, even a months’ time, however, a totally different situation may prevail, and investments of time and money made on the basis of an opportunity at an exchange rate of the day, become completely wasted because of subsequent exchange rate movements.
The great advantage of having a single stable world money is that such money has very high information content. It tells people where to invest their time, energy and capital, all around the world, with much greater accuracy and predictability than would otherwise be possible.
THE reading passage has four sections. Choose the most suitable heating for each section from the list of headings below.
Write the appropriate numbers in boxes 14-17 on your answer sheet. Note: There are more headings than sections so you will not use all of them.
i. The Price of Gold
ii. The Notion of Money and its Expression
iii. The Rise of Problematic Modern Currencies
iv. Stable Money Compared to Modern “fiat” Currencies
v. The Effects of Inflation
14. SECTION I: .………………………….
15. SECTION II: ……………………………
16. SECTION III: …………………………..
17. SECTION IV: ………………………….
USING information from the text, match the following causes with a result. Write the appropriate letters in boxes 18-21 on your answer sheet.
A. Oil substitutes become more expensive
B. Oil substitutes drop in price
C. People developed techniques of transporting it to other places
D. More people went to live in Australia
E. The price of other things goes down, because fewer people could afford to buy them
F. People used gold instead of silver as money
G. All prices went up slightly, everywhere
H. There is no observable effect
I. All prices went down, everywhere
18. The price of potatoes goes up ………………………………
19. The amount of gold available went down ……………………
20. Meat in Australia was cheaper than elsewhere …………………..
IN the reading passage, writer compared money based on a gold standard, and fiat money. Using the information in the passage, match a phrase A, B or C in the box with the writer’s opinions in each question to show which kind of money is meant. Write the appropriate letter in boxes 22 – 26 on your answer sheet.
A. Money based on a gold standard
B. Government fiat monopoly currencies
C. Both money based on a gold standard and fiat currencies
22. The writer states that it has a clearly defined value ……………………
23. The writer states that its value by definition varies over time ……………………
24. The writer describes its future value as predictable …………………
25. The writer knows or can calculate its past value ……………….
26. The writer believes it makes international investment easier ………………..
Answers are below
- Why study IELTS with us?
- Top Ten Tips for Listening Test
- Golden rules and useful tips for IELTS Writing Task